Mar 29, 2013 Editorial
For developing countries such as Guyana, one of the constraints to an accelerated but sustainable growth trajectory has been the question of financing its infrastructural development programme. While many of these countries are well endowed with natural resources, because they were under colonial rule they were considered as producers of primary products that were to be shipped to the ‘mother country’ for further processing and addition of value. Infrastructural development, which would have facilitated further domestic economic integration, was confined to export facilitation.
The World Bank, established in the waning days of WWII as independence for the various colonial empires dawned, was supposed to provide the necessary financing. But controlled by the victorious western powers and working in tandem with its sister institution, the IMF, many developing countries concluded after decades of stagnation, bankruptcies and ‘structural readjustment programmes’, that these institutions were simply working to perpetuate ‘neo-colonial’ relationships.
But there was no alternative: until now, that is. With the phenomenal development of China as the ‘factory of the world”, but more significantly of the USA, that country has piled up more than US$3 trillion in foreign reserves which it is looking to deliver higher returns than from US T-Bills. In the last decade, China has embarked on the deployment of its reserves to secure its strategic economic and political interests. This has been especially noticeable in Africa where the Chinese behemoth has moved to secure minerals and oil to keep its factories running while doling out massive low cost loans (and grants) to build infrastructure.
The tiny islands of the Caribbean have not been overlooked: while they may not have vast mineral resources, they still have one vote each at the UN General Assembly. Witness the multi-billion-dollar Chinese resort in the Bahamas and the cricket stadium in Dominica. Very recently there has been a spate of loans from China for projects ranging from the expansion of the Cheddi Jagan International Airport to e-governance communications infrastructure.
Not surprisingly there have been concerns raised in Africa and elsewhere (including Guyana) about the leverage the Chinese have been gaining because of its loans which could develop into the same neo-colonial relationship fostered by the World Bank/IMF. It is akin, it is claimed, to replacing one master with another. Defenders of the new relationship, however, point out that unlike the Bretton Woods ‘sisters’, China has not imposed conditionalities on its loans that plunged so many countries into crises during the past half-century.
But this lack of conditionality itself poses a danger, since it encourages moral hazard and rent seeking in the local political directorates which are, in effect, ‘bought over’. The announcement, therefore of the leaders of BRICS (Brazil, Russia, India, China and South Africa) at their recent meeting in Durban – that they have placed another brick in the edifice of the BRICS Development Bank – is a welcome one.
Floated at their meeting last year, the leaders confirmed that the proposed Bank would focus on infrastructure development because long-term financing and foreign direct investment, especially investment in capital stock, is sorely lacking. The plan is to initially capitalise the bank with US$50 billion of equity, but agreement on the individual funding contributions was not reached by the time the summit concluded. The Chinese have proposed that each member contribute $10 billion, with China picking up any shortfall. The leaders are expected to pick up the issue on the sidelines of the G20 meeting slated for September this year.
The key concern from a Guyanese (and developing country perspective) is that no one country should dominate the BRICS Development Bank, because that would defeat the whole purpose immanent in the move away from the World Bank/IMF or direct loans from China. If each country has equal shares, then hopefully, the loans could then be rationalised from a consensual position that would have a multiplicity of views. At this point, the problem is that South Africa would not be able to meet the necessary commitment. We hope this issue is resolved by September.
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